limited company Articles

Contractors Stung by Dividend Allowance Cut

After wrapping up their tax affairs for the 2018/19 tax year, many limited company contractors will only now be waking up to the reality of the 2018 dividend allowance cut, which saw the tax-free dividend allowance drop from £5,000 to £2,000.

In 2018/19, this tax-free allowance was applied to the first £2,000 of dividend income. Above £2,000, dividends are taxed at a flat rate according to the tax band they fall into.

Private Sector IR35 Reforms: What It Means for You
marketing | 30 October 2018
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The Treasury released new guidance on off-payroll working (IR35) in the private sector yesterday, following the Chancellor’s Budget speech.

Following a consultation on the rules, some commentators expected IR35 reforms to take effect from next year. But the policy paper reveals that the changes will be introduced in April 2020, giving businesses more time to prepare for the reforms

We’ve combed through the policy document, picking out the key points so you can understand how the changes will affect you.

What should contractors pay themselves?
marketing | 16 September 2017
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Contractor pay is important to us. Many contractors work long hours and have to perform a lot of additional administration that isn’t involved in other lines of work. So it is important that the financial rewards match the burdens of the job.

Unfortunately, the tax framework for contractors is something of a minefield. Recognising the most efficient way to draw income from your contracts is far from simple.

Between umbrella contracting, dividends and IR35 legislation, it can be difficult to know the best way of doing things. We hope to clear it up in this blog post.

AUTUMN STATEMENT REVIEW

The Chancellor’s first Autumn Statement contained some pretty eye-watering sums. The estimated cost of Brexit at £58.7bn and an extra £122bn of borrowing in this parliament are two of the biggest.

There were some positive numbers though. £26bn to fund investment in housing, transport, digital technology and research and development will prove valuable to contractors in some of these industries.

Others, meanwhile, will be left counting the cost of tax increases. Here are seven of the most important points for contractors and limited company owners.

VAT doesn't have to be taxing

A lot of small business owners put off getting VAT registered because they find it daunting. But VAT doesn’t have to be taxing. The Flat Rate VAT scheme makes it easy, and it can help boost your post-tax profits too.

The Flat Rate VAT incentive is a popular choice for independent contractors, sole traders and directors of small limited companies. Read on to find out if it is right for you as well.   

How Flat Rate VAT works

The Flat Rate VAT scheme is a government incentive designed to simplify taxation and get more small businesses growing. 

What expenses can limited company contractors claim

If you contract through a limited company, there are certain expenses that you can claim against your income to reduce your tax liability.

If your limited company makes £50,000 and you claim back £10,000 in allowable expenses, the taxable profit will be £40,000.

There are some rules governing what expenses limited company contractors can claim.

How Much Will April Dividend Cut Cost You?

A cut in dividend allowance will cost some contractors more than £1,000 per year when it takes effect from April.

The allowance on dividends will be cut from £5,000 to £2,000 as the chancellor continues his raid on self-employed finances.

This means that individuals will not pay taxes on the first £2,000 of dividend income, regardless of what non-dividend income they have.

Tool: Check your IR35 status before April
marketing | 7 March 2017
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HMRC has launched a new tool designed to help contractors, and those that engage them, decide a worker’s IR35 status.

But with less than a month to go before a fundamental change in the way IR35 rules are applied, some experts have found cause for concern with the Employment Status Indicator tool.

A contractor’s IR35 status is all about whether the contract they are working on should be considered employed or self-employed for tax purposes. The Employment Status Service is supposed to give HMRC’s view of whether a contract is inside or outside IR35.

This will be of particular interest to limited company contractors working in the public sector because, from April, it will be the public sector organisations that decide on IR35 status instead of the individual. 

PSC register for limited companies
marketing | 16 February 2016
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A new regulation that requires companies to create a ‘Register of People with Significant Control’ (PSC register) comes into force on 6 April 2016.

The changes should not be too strenuous for companies, but it is important that they are aware and fulfil their obligations in line with the new rules.

What is a PSC register?

The PSC register forms part of the reform to UK company law that was introduced in the Small Business, Enterprise and Employment Act 2015.  

Contractor Cloud Accounting Software

If you are a contractor or freelancer the most tax efficient way for you to work is often through your own limited company. This allows you to benefit from the incentives offered for setting-up and running your own business and hence allows you to maximise your earnings after tax.

It also enables you to develop and build your business & brand and potentially in the future employ others.

The downside of this is that there is more responsibility on you as a director of your own limited company and there are statutory requirements re maintaining financial records, preparing and submitting year-end accounts, corporation tax returns, personal tax returns, payroll and managing invoicing & payments. 

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